COMMUNITY BANCORP /VT

OVERVIEW

The Company’s consolidated assets at year-end 2024 were $1.25 billion compared to $1.10 billion at year-end 2023, an increase of 13.6%. Asset growth in 2024 was driven by increases in loans of $82.5 million, or 9.8%, and an increase of $90.5 million, or 443.0%, in cash on deposit at FRBB, but was partially offset by a decrease of $31.0 million, or 16.3%, in securities AFS portfolio. Loan growth was attributable to increases in the CRE portfolio of $57.3 million, or 13.8%, the commercial & industrial loan portfolio of $2.3 million, or 1.9%, the municipal loan portfolio of $12.6 million, or 23.2%, the residential real estate first lien portfolio of $9.31 million, or 4.4%, and the residential real estate Jr lien portfolio of $4.0 million, or 12.7%. These increases were partially offset by a decrease of $2.8 million, or 26.1%, in the purchased loan portfolio.

Funding for loan growth was provided by a combination of an increase of $104.7 million, or 11.7%, in deposits and an $18.0 million increase in borrowed funds, which totaled $72.6 million at December 31, 2024, compared to $54.6 million at December 31, 2023. The increase in deposits, which were $1.0 billion at December 31, 2024, compared to $897.0 million at December 31, 2023, was attributable to the combined effect of an increase in core deposits (demand deposit accounts, both interest bearing and non-interest bearing) of $1.9 million, or 0.4%, an increase of $48.2 million, or 39.7%, in money market funds, and an increase of $63.3 million, or 51.0% in time deposits. These increases were partially offset by a decrease of $8.6 million, or 5.7%, in savings accounts. The Company has been offering competitive interest rates for retail time deposits, and accessing the brokered deposit market, accounting for the increase in these funds. An increase in deposit balances is typical in the third and fourth quarters of the calendar year, with balances increasing through year end due in part to municipal accounts collecting tax payments.

Total interest income increased $8.1 million, or 17.3%, year over year due primarily to the increase in the volume of the loan portfolio.

Total interest expense increased $7.7 million, or 60.5%, for the year ended December 31, 2024 compared to 2023, driven mostly by the increase in interest-bearing deposit accounts and time deposits, together with the increased reliance on borrowed funds. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the potential impact of changes in the yield curve on net interest income.

The credit loss expense for the year ended December 31, 2024 and 2023, was determined under ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, commonly referenced as the Current Expected Credit Losses, or CECL, which the Company adopted effective January 1, 2023. The credit loss expense for the year ended 2024 was $1.1 million compared to $1.5 million for 2023, resulting in a decrease of 23.5% year over year. The current period credit loss expense considers several factors, including loan growth and changes in balances of the loan categories within the current portfolio, changes in forecasts, historical loss rate and qualitative factors. During the fourth quarter of 2024, certain qualitative factors used in the ACL calculation were adjusted to better reflect expected credit losses in the loan portfolio. Please refer to Note 1 of the audited consolidated financial statements as well as the ACL and credit loss expense discussion in the Credit Risk section of this MD&A.

Consolidated net income in 2024 decreased $667 thousand, or 5.0%, from $13.4 million for 2023 to $12.8 million for 2024. The $8.1 million increase in interest income was mostly offset by the $7.7 million increase in interest expense and coupled with a decrease of $347 thousand in the credit loss expense year over year, resulted in a moderate increase of $769 thousand in net interest income after credit loss expense. Non-interest income increased $7 thousand, or 0.1%, while non-interest expense increased $1.9 million, or 8.1% year over year. These changes, along with other significant changes in non-interest income and non-interest expense are discussed in the appropriate sections of this MD&A.

Equity capital increased to $98.0 million, with a book value per share of $17.24 as of December 31, 2024, compared to equity capital of $89.0 million and a book value of $15.87 as of December 31, 2023. This increase in equity capital reflected net income for 2024 of $12.8 million and a slight decrease of $155 thousand, net of tax, in the accumulated other comprehensive loss, which was offset in part by dividends paid totaling $3.7 million. This unrealized loss position is considered temporary and does not impact the Company’s regulatory capital ratios.

On December 17, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per common share, payable on February 1, 2025 to shareholders of record on January 15, 2025.

Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and the demand for loans and other products and services we offer, which are highly dependent on the business environment in our local banking markets and in the country. Recent economic reports for the state of Vermont show employment in the hardest hit industries such as leisure and hospitality has risen but is still below pre-pandemic levels. The Vermont unemployment rate, seasonally adjusted, in December of 2024 was reported at 2.1%.

As of December 31, 2024, all the Company’s capital ratios, and those of our subsidiary Bank, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an economic downturn from any headwinds related to inflation or recessionary periods, should one occur, our equity capital and regulatory capital ratios could be adversely impacted, including as a result of credit losses and other adverse impacts of government monetary policy.